CIGI Papers No. 141 — August 2017 Southern Accents The Voice of Developing Countries in International Financial Governance James M. Boughton CIGI Papers No. 141 — August 2017 Southern Accents: The Voice of Developing Countries in International Financial Governance James M. Boughton CIGI Masthead Executive President Rohinton P. 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Centre for International Governance Innovation and CIGI are registered trademarks. 67 Erb Street West Waterloo, ON, Canada N2L 6C2 www.cigionline.org Table of Contents vi About the Author vii About the Global Economy Program vii Acronyms and Abbreviations 1 Executive Summary 1 Introduction 2 Origins and Evolution of the “Third World” 3 Establishment of Ad Hoc Country Groups, 1961–1972 7 The Role of Developing Countries in Systemic Reform, 1972–1986 14 Further Evolution of Ad Hoc Groups, 1973–1999 16 The Effect of the G20 on the Role of the G24 20 Conclusions 23 Works Cited 26 About CIGI 26 À propos du CIGI About the Author James M. Boughton is a CIGI senior fellow. He is a former historian of the IMF, a role he held from 1992 to 2012. From 2001 to 2010, he also served as assistant director in the Strategy, Policy, and Review Department at the IMF. From 1981 until he was appointed historian, he held various positions in the IMF’s Research Department. Before joining the IMF, James was an economist in the Monetary Division at the Organisation for Economic Co-operation and Development in Paris and professor of economics at Indiana University. James is the author of two volumes of IMF history: Silent Revolution, covering 1979–1989; and Tearing Down Walls, covering 1990–1999. His other publications include a textbook on money and banking, a book on the US Federal funds market, three books on IMF topics that he co-edited, and articles in professional journals on international finance, monetary theory and policy, international policy coordination and the history of economic thought. vi CIGI Papers No. 141 — August 2017 • James M. Boughton About the Global Acronyms and Economy Program Abbreviations Addressing limitations in the ways nations APEC Asia-Pacific Economic Cooperation tackle shared economic challenges, the Global Economy Program at CIGI strives to inform and BSFF Buffer Stock Financing Facility guide policy debates through world-leading C20 Committee of Twenty research and sustained stakeholder engagement. CFF Compensatory Financing Facility With experts from academia, national agencies, international institutions and the private sector, EFF Extended Fund Facility the Global Economy Program supports research in the following areas: management of severe G5 Group of Five large industrial countries sovereign debt crises; central banking and international financial regulation; China’s role G7 Group of Seven large industrial countries in the global economy; governance and policies G8 Group of Eight large industrial countries of the Bretton Woods institutions; the Group of Twenty; global, plurilateral and regional G10 Group of Ten large industrial countries trade agreements; and financing sustainable development. Each year, the Global Economy G20 Group of Twenty large Program hosts, co-hosts and participates in advanced and emerging economies many events worldwide, working with trusted international partners, which allows the program G24 Intergovernmental Group of Twenty- to disseminate policy recommendations to an Four on International Monetary Affairs international audience of policy makers. G77 Group of 77 developing countries Through its research, collaboration and GAB General Arrangements to Borrow publications, the Global Economy Program informs decision makers, fosters dialogue IFS international financial system and debate on policy-relevant ideas and strengthens multilateral responses to the most IMF International Monetary Fund pressing international governance issues. IMFC International Monetary and Financial Committee PRGF Poverty Reduction and Growth Facility SAF Structural Adjustment Facility SDR Special Drawing Right T20 Think20 UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme Southern Accents: The Voice of Developing Countries in International Financial Governance vii — Poverty anywhere is a threat These successes, however, have been infrequent to prosperity everywhere. and limited in scope. On most larger issues, including demands for larger and more dependable Sidney S. Dell (1990, 30) financing for development and arguments for taking the development needs of indebted countries into account in evaluations of external debt sustainability, the G24 has achieved very little. To have more consistent and more substantive Executive Summary success, the G24 would need to implement internal reforms, including a greater focus on achieving Developing countries formed the Intergovernmental consensus within the group and more financial Group of Twenty-Four on International Monetary and logistic support for its secretariat. In addition, Affairs (G24)1 as a counterweight to the Group the advanced economies should recognize that a of Ten (G10) large industrial countries in the more inclusive system — in which small developing negotiations to reform the international financial countries as a group have a seat at the table and are system (IFS). Since then, the industrial and other able to press directly for their interests — would be relatively advanced economies have revised fairer, more balanced and more effective. Potential their own groupings several times, culminating reforms would include expanding participation in the formation of the Group of Twenty (G20) in the G20 through a more comprehensive in 1999. Throughout this history, the G24 has constituency system and integrating the G20 found it difficult to influence the direction of more directly into the formal treaty-based systemic reforms. Participation in the governance institutions, the IMF and the World Bank. of the financial system is based primarily on the economic size of each country. Even though developing countries constitute the great majority of countries and are home to a majority of the world’s population, their economic weight is relatively small. Developments over the past Introduction 20 years, notably the formation of the G20 and the group of large emerging market countries When the modern IFS was created during known as the BRICS (Brazil, Russia, India, China World War II, it was designed largely, but not and South Africa), aggravated this imbalance by exclusively, by a few advanced and industrialized dividing developing countries into two distinct economies. Developing countries participated in categories: the six largest (BRICS plus Argentina), and contributed marginally to the proceedings. which are systemically important enough to be Subsequently, especially in the 1960s, the dominant invited into the G20, and the 150 or so others rich countries decided that running the system and that are too small and too poor to be included. shaping its evolution should be their responsibility alone. It then fell to the developing countries to Despite these challenges, the G24 has had try to regain a voice and to claw back a measure of occasional successes. It helped guide the influence. It has not been easy, and the successes International Monetary Fund (IMF) to orient have been few and mostly around the edges. its lending facilities toward helping developing countries. It pushed the G10 to support creation of Whether the IFS is guided by a small group of the Special Drawing Right (SDR) as a financial asset countries or is shaped by a more diverse and for all IMF member countries, and it was largely inclusive group is a matter of global importance. responsible for keeping the SDR alive in the face of Although small and poor countries — while large strong opposition from some industrial countries in number — account for only a small portion in the 1980s and 1990s. More recently, it was the of total cross-border financial flows, they have a main driver of the successful reform of the IMF to strong stake in the outcome. In the aggregate, that give